Darling calls for reforms to fight crunch

Alistair Darling will tonight call for major reforms of the world's financial institutions as the fight to overcome the credit crunch becomes increasingly desperate.

Alistair Darling wants early-warning system.

The Chancellor will tell a meeting of finance ministers and central bankers in Washington that major organisations 'need to adapt to today's problems', saying there should be an 'early warning system' to flag up future problems.

His comments, with hints there may be more regulations on the way, come as financial leaders struggle to come to terms with the depth of the crisis. It puts him at odds with many in the City and New York who want action rather than red tape.

He is at loggerheads with the International Monetary Fund (IMF), which has slashed its economic growth forecasts for the UK, undermining Darling's rosy outlook. 'We're looking to the G7 central banks to co-operate in dealing with this crisis and adopt a common position,' said Thomas Mayer, chief European economist of Deutsche Bank. 'That hope appears likely to be disappointed'

The IMF has effectively admitted it was asleep on the job. 'There was a collective failure to appreciate the extent of the leverage taken on by a wide range of institutions and the associated risks of disorderly unwinding,' it said.

US Federal Reserve chairman Ben Bernanke laid the blame for the credit crunch on rating agencies and investors. 'Investors must take more responsibility for developing independent views of the risks of subprime mortgage securities,' he said.

In tonight's speech, Darling will say: 'There are two key lessons that can be drawn from the current crisis. First, national economies are intimately linked and events in one country can impact on others.

'Second, there is a need for national policy makers to take action in response to the risks that have been identified. That is why the IMF needs to work with the Financial Stability Forum to develop an early-warning system. The IMF must focus surveillance more closely on financial sector issues and links between developments in the financial sector and the real economy.'

He said the IMF should strengthen its analysis of spillovers between economies, so there is 'a better understanding of how difficulties in one market in one country can be transmitted to another.' He will add that there should be a shift from national surveillance to focusing on multilateral surveillance.